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The Weekly Report For March 4th – March 8th

This week the Dow Jones Industrial Average reached a record high of over 14,350, surpassing its previous highs made back in October 2007 before the financial crisis. While stubborn unemployment and spending cuts remain a threat to growth, investors seem to have already discounted these risks as old news, with better-than-expected service sector and improving employment data cited as catalysts behind the recent move higher.

Countries outside of the United States also appear to be doing pretty well lately. With Japan’s lower yen valuation, China’s export growth and Italian elections over in the eurozone, the MSCI World Index reached levels that it hasn’t seen since June 2008. Many risks remain in these countries, but it seems that investors’ risk appetite has returned and they have largely set their sights on the future, having already discounted these risks in equity valuations

The S&P 500 SPDR (ARCA:SPY) ETF moved nearly 2% higher this week, reaching a new 52-week high of 155.60, as of early trading Friday morning. After breaking above its prior high and R1 pivot point, the index extended its gains to the R2 pivot point level at 155.76, albeit on lower volume toward the end of the week. Traders should watch for a breakout of this key level on the upside, or a breakdown below 153.68 on the downside, moving into next week. Looking at technical indicators, the MACD experienced a bullish crossover that signals a potential extended rally, but the RSI seems to suggest that the index is overbought with a reading of 66.08

The Dow Jones Industrial Average SPDR (ARCA:DIA) ETF reached new all-time highs this week, surpassing its prior highs dating back to October 2007. After breaking out past its R1 pivot point at 141.86, the index proceeded to break out past the R2 pivot point as well at 143.44, moving into uncharted territory. Traders should watch for a pullback from these levels next week, as some participants lock in profits, while a move down to 139.73 would close the gap and enable some consolidation before another move higher. Looking at technical indicators, the MACD recently experienced a bullish crossover, but the RSI appears to be quite overbought with a reading of 71.37, signaling a potential retracement ahead.

The PowerShares QQQ (Nasdaq:QQQ) ETF was one of the few U.S. indices to not reach a high this week, although it did rise over 1.9%, as of early trading Friday morning. After breaking above the R1 pivot point at 68.25, the index remains well below the R2 pivot point at 69.41, consolidating before a potential move higher. Traders should watch these two key levels for a move in either direction, with a breakdown below 68.25 potentially leading to a move down to 67.07. Looking at technical indicators, the MACD recently made a bullish crossover on the strength this week, while the RSI remains relatively neutral at 60.89.

The iShares Russell 2000 Index (ARCA:IWM) ETF reached a new 52-week high of 93.73, as of early trading Friday morning. After breaking out from prior highs at around 93.00, the index jumped past its R1 pivot point of 92.51 and remains below the R2 pivot point of 94.54. Traders should watch these two levels for a breakout, with downside price action potentially leading to the 90.65 pivot point and upside action moving into uncharted territory. Looking at technical indicators, the MACD experienced a slight bullish crossover but the RSI appears to be overbought at 66.83, suggesting a potential retracement in the near future.

The Bottom Line

Most of the major U.S. indices reached new highs this week, but many of them may experience retracements next week as traders take profit off of the table, allowing RSI levels to move back down. Looking into next week, traders will also be watching for U.S. jobless claims and producer price index data on March 14 and industrial production data on March 15 for direction.

Crude-oil futures rebound, with prices for Brent leading the charge higher, as violence in Libya and developments linked to an agreement over Iran’s nuclear program raised risks to global oil supplies. […]